FTX, the cryptocurrency exchange that filed for bankruptcy last fall, has filed a lawsuit against the parents of its founder and former CEO, Sam Bankman-Fried. The complaint accuses Joseph Bankman and Barbara Fried of taking advantage of their relationship with FTX to enrich themselves at the expense of FTX customers.
"This action seeks to recover millions of dollars in fraudulently transferred and misappropriated funds from the parents of FTX Founder Samuel Bankman-Fried: his father, Defendant Allan Joseph Bankman, and his mother, Defendant Barbara Fried," according to the complaint filed by FTX. "As Bankman-Fried’s parents, Bankman and Fried exploited their access and influence within the FTX enterprise to enrich themselves, directly and indirectly, by millions of dollars, and knowingly at the expense of the debtors in these Chapter 11 Cases and their creditors."
The 63-page complaint filed with the U.S. Bankruptcy Court of Delaware alleges that Bankman used his position as a tenured professor at Stanford Law School, as well as his relationship with his son, "to position himself as an insider" within FTX. He provided pro bono counsel to FTX, as well as its associated hedge fund, Alameda Research, and was later appointed Senior Advisor of the FTX Foundation. The complaint said Bankman operated as a de facto director of FTX and oversaw charitable contributions, tax issues, loan issuance, property acquisition, and hiring decisions.
According to the complaint, although Bankman was "well-positioned" to establish internal controls or flag misconduct taking place at FTX, he did not raise any alarms, and he "helped hush a complainant" who could have exposed the fraud within the organization "in at least one instance." "Bankman was richly rewarded for helping perpetuate the FTX Insiders’ fraud," the complaint said, detailing his trips on private jets, expensive hotel stays, appearance in a Super Bowl commercial, and receipt of millions of dollars worth of "gifts" and property. The complaint accused Bankman of abusing his position at FTX to funnel money into lavish gifts for his associates and donations to causes of his choice, including Stanford University, his employer.
The complaint said Bankman-Fried's mother, Barbara Fried, described herself as her son's “partner in crime of the noncriminal sort" and said she was the "single most influential advisor regarding Bankman-Fried’s and the FTX Group’s political contributions." Fried allegedly directed her son to donate millions of dollars to the political action committee for which she served as president and chairwoman, Mind the Gap, Inc.
Together, Bankman-Fried's parents used their influence over the organization to worsen its financial situation while ignoring "bright red flags" pointing to the misconduct within the exchange, according to the complaint. FTX is accusing Bankman of breaching his fiduciary duties, fraudulent transfer, aiding in the breach of fiduciary duties, unjust enrichment, and disallowance of claims. Fried is accused of unjust enrichment, fraudulent transfer, aiding in the breach of fiduciary duties, and disallowance of claims. FTX is seeking to recover all property and obligations that were transferred to both parents prior to FTX's bankruptcy filing last November.
As previously reported by Federal Newswire, Bankman-Fried is facing multiple criminal fraud charges for allegedly commingling funds between FTX and its associated hedge fund Alameda Research. The exchange's high-profile bankruptcy filing revealed billions of dollars of missing investor and customer funds. Bankman-Fried was extradited from the Bahamas to the U.S. in December and subsequently indicted for his role in what some are calling the biggest financial fraud in American history. Bankman-Fried's parents paid his record $250 million bond in December, after which he was residing at their $4 million Palo Alto home until a judge revoked his bail in August over suspected attempted witness tampering. His trial is scheduled to begin in October.
